Estimating the Relationship between Skill and Overconfidence
The Dunning–Kruger effect states that low performers vastly overestimate their performance while high performers more accurately assess their performance. Researchers usually interpret this empirical pattern as evidence that the low skilled are vastly overconfident while the high skilled are more accurate in assessing their skill. However, measurement error alone can lead to a negative relationship between performance and overestimation, even if skill and overconfidence are unrelated. To clarify the role of measurement error, we restate the Dunning–Kruger effect in terms of skill and overconfidence. We show that we can correct for bias caused by measurement error with an instrumental variable approach that uses a second performance as instrument. We then estimate the Dunning–Kruger effect in the context of the exam grade predictions of economics students, using their grade point average as an instrument for their exam grade. Our results show that the unskilled are more overconfident than the skilled. However, as we predict in our methodological discussion, this relationship is significantly weaker than ordinary least squares estimates suggest.
|Date of creation:||Mar 2017|
|Publication status:||published in: Journal of Behavioral and Experimental Economics, 2017, 68, 18-24|
|Contact details of provider:|| Postal: IZA, P.O. Box 7240, D-53072 Bonn, Germany|
Phone: +49 228 3894 223
Fax: +49 228 3894 180
Web page: http://www.iza.org
|Order Information:|| Postal: IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Krajc, Marian & Ortmann, Andreas, 2008.
"Are the unskilled really that unaware? An alternative explanation,"
Journal of Economic Psychology,
Elsevier, vol. 29(5), pages 724-738, November.
- Marian Krajc & Andreas Ortmann, 2007. "Are the Unskilled Really That Unaware? An alternative explanation," CERGE-EI Working Papers wp325, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
- Jan Feld & Nicolás Salamanca & Daniel S. Hamermesh, 2016. "Endophilia or Exophobia: Beyond Discrimination," Economic Journal, Royal Economic Society, vol. 126(594), pages 1503-1527, 08.
- Feld, J.F. & Salamanca Acosta, N. & Hamermesh, D., 2013. "Endophilia or exophobia: beyond discrimination," ROA Research Memorandum 008, Maastricht University, Research Centre for Education and the Labour Market (ROA).
- Feld, J.F. & Salamanca Acosta, N. & Hamermesh, D., 2013. "Endophilia or exophobia: beyond discrimination," Research Memorandum 026, Maastricht University, Graduate School of Business and Economics (GSBE).
- Jan Feld & Nicolás Salamanca & Daniel S. Hamermesh, 2013. "Endophilia or Exophobia: Beyond Discrimination," NBER Working Papers 19471, National Bureau of Economic Research, Inc.
- Feld, Jan & Salamanca, Nicolas & Hamermesh, Daniel S., 2013. "Endophilia or Exophobia: Beyond Discrimination," IZA Discussion Papers 7380, Institute for the Study of Labor (IZA).
- Feld, Jan & Salamanca, Nicolás & Hamermesh, Daniel S., 2014. "Endophilia or Exophobia: Beyond Discrimination," Working Papers in Economics 593, University of Gothenburg, Department of Economics, revised Mar 2015.
- Schlösser, Thomas & Dunning, David & Johnson, Kerri L. & Kruger, Justin, 2013. "How unaware are the unskilled? Empirical tests of the “signal extraction” counterexplanation for the Dunning–Kruger effect in self-evaluation of performance," Journal of Economic Psychology, Elsevier, vol. 39(C), pages 85-100.
- Jan Feld & Ulf Zölitz, 2017. "Understanding Peer Effects: On the Nature, Estimation, and Channels of Peer Effects," Journal of Labor Economics, University of Chicago Press, vol. 35(2), pages 387-428.
- Jose A. Scheinkman & Wei Xiong, 2003. "Overconfidence and Speculative Bubbles," Journal of Political Economy, University of Chicago Press, vol. 111(6), pages 1183-1219, December.
- Ryvkin, Dmitry & Krajč, Marian & Ortmann, Andreas, 2012. "Are the unskilled doomed to remain unaware?," Journal of Economic Psychology, Elsevier, vol. 33(5), pages 1012-1031.
- Marian Krajc, 2008. "Are the Unskilled Really That Unaware? Understanding Seemingly Biased Self-Assessments," CERGE-EI Working Papers wp373, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
- Dan Lovallo & Colin Camerer, 1999. "Overconfidence and Excess Entry: An Experimental Approach," American Economic Review, American Economic Association, vol. 89(1), pages 306-318, March. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp10611. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mark Fallak)
If references are entirely missing, you can add them using this form.